Photo archives.| Photo courtesy of Utah State Extension, St. George News
CHARACTERISTIC – The long-awaited details of President Joe Biden’s student loan forgiveness plan have been officially announced.
In summary, based on last year’s tax return, the plan forgives up to $10,000 of federal student loan debt for people earning less than $125,000 a year (or households earning less than $250,000). Pell Grant recipients can qualify for loan forgiveness of up to $20,000. (See all the details of the student loan cancellation plan here.)
You may qualify for student loan forgiveness of $10,000 to $20,000, but keep in mind that anything beyond that will need to be repaid. The pause on federal student loan payments is extended through December, with payments beginning again in January 2023.
You can check your eligibility via the Department of Education and sign up to receive email updates, which will be essential moving forward. If the department already has your earnings information, you may qualify for an automatic discount. Otherwise, applications will go live in December – another reason to sign up for updates on the department’s website.
Here are three essential action items to consider for reimbursement.
1. Preparing for repayment. Adjust your spending now so you’re ready to start making payments in January. It’s hard to believe that it’s been several years since people have had to repay their student loans. How much will your monthly payment be in January? Can you put this amount in a separate savings account in September, October, November and December?
Practice going without this income for a few months. Consider that you now have four months to get used to not spending that money on your discretionary expenses. Start putting it aside now because you’ll soon have to pay your student loan bill, due each month starting in January 2023. Not sure where to start with budgeting? Sign up for a free personal finance webinar.
2. Watch out for scams. Do not give money or information to people who promise student loan forgiveness. Red flags include: charging an upfront fee, asking for personal information over the phone or email, pressure to decide quickly, asking you to cut off communication with your loan officer, pretending to be affiliated with your loan officer, or to the Ministry of Education, etc. If you experience this problem, cancel your payments, contact your repairer and submit a report to the Consumer Financial Protection Bureau. You can also report it to department.
3. Enjoy the time. The extended payment break means borrowers have an additional four months interest-free on their debt. Now is the best time to work on reducing the principal balance (and also reducing future interest costs). Making additional payments is the easiest way to do this. Create a free account on the USU sponsored extension PowerPay.
Written by AMANDA CHRISTENSEN, Utah State University Extension Professor and Certified Financial Advisor.
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